from the sky-is-rising dept

Our own research has shown this over the past few years, but contrary to the doom-and-gloom stories from the big entertainment companies about how awful the internet has been for their business, the truth is that it's enabling tremendous growth and profits. A few months ago, a study of the major record labels showed that they remained tremendously profitable.

There's some up and down in there, but there's fairly consistent profitability, with pretty massive profitability from the two biggest ones, Universal Music and Sony. The report also notes a big increase in the profit margins that these companies are making, able to squeeze a lot more money out of existing resources.

“We are seeing that digital is very much driving profits now, instead of disrupting it. Companies are figuring out how to monetize the migration of consumers to a variety of digital platforms, and this insatiable demand for content is fueling growth throughout the industry.”

Remember how the internet was supposedly killing music? Yeah, about that:

The music sector is driving record growth in profitability from the expansion of licensed digital subscription and streaming services, growth in music publishing and rising smartphone and tablet penetration in emerging markets.

Film?

Film and TV production companies are driving their profitability through increasing revenues from digital platforms and investments in franchise-based films and higher-margin television shows.

But, wait, just weeks ago, one of the copyright maximalist talking heads was telling us that franchise movies were being killed off due to piracy? Maybe not.

Either way, this goes back to the point that many of us made during the SOPA fight. Despite the desire of Hollywood and certain politicians to make this into a "fight" of Hollywood vs. Silicon Valley, it's a bizarre kind of "fight" when it's Silicon Valley providing all the "weapons" to Hollywood that's making them so profitable.

from the due-process-means-something dept

For years now, the entertainment industry's dream is that it should be able to point to certain websites and say "bad website" and have the rest of the world make that website disappear. The fact that the industry has a dreadful history of falsely accusing perfectly legitimate sites as infringing, leading to bogus takedowns that are destroying perfectly legitimate businesses, either by shutting them down without any evidence, or involving them in extended legal battles, apparently never enters the equation. The entertainment industry still insists that when it points to a site and says "bad" that the site should immediately be forced to disappear.

Furthermore, the industry seems to believe that everyone else has a legal responsibility to carry out its wishes once it declares a site as bad. It thinks hosts should take down sites, search engines should stop linking to them, advertisers should block ads, registrars should pull domain names and ISPs should block access. You'd think that maybe actually adapting to new technologies and giving people more of what they want might be a more compelling strategy, but the legacy entertainment industry prefers demanding that everyone else go out of their way to protect the legacy industry's obsolete business model, without the industry itself doing anything more than pointing at sites (often incorrectly).

The latest battle ground for this appears to be in Austria, where an "anti-piracy" group representing the movie industry, VAP, has sued four local ISPs (UPC, Drei, Tele2 and A1) for failing to block access to two sites based entirely on VAP's say so. That is, there is no court case or court order saying that the ISPs need to block Movie4K.to and Kinox.to. It's entirely VAP saying so (it also asked for the ISPs to block The Pirate Bay, but for some reason left that one out of the eventual lawsuit). When the ISPs quite reasonably said, "Uh, where's the court order?" rather than go to court against the sites in question, VAP sued the ISPs. That seems tremendously questionable.

Either way, it appears that IFPI is jumping in on the action too. You may recall just a few weeks ago the head of the IFPI in Austria, Franz Medwenitsch, foreshadowed this move by claiming that it's not censorship to block sites that he, personally, doesn't like. It's only censorship when you block sites he likes, you see? And he doesn't like The Pirate Bay. So, he's going to sue ISPs to block it and other sites as well.

The idea that entire websites should be completely inaccessible based entirely on the say so of a particular industry (with a very long history of attacking any new innovation) seems immensely worrisome if you believe in an open internet or basic principles of innovation. Giving the legacy film or music industry a "veto" on innovation merely by declaring a site "rogue" is a very dangerous idea. The ISPs are right to stand up and demand more than just those industry groups' say so, and hopefully courts will agree.

from the these-things-come-back-to-bite-you dept

Soon after the death of SOPA, we wrote about a great post from entrepreneur Tyler Crowley (which, sadly, seems to have disappeared from the internet) discussing his reactions to some entertainment industry execs trying to "make peace" with entrepreneurs. He does a great job discussing different "islands of opportunity" for entrepreneurs, noting that certain "islands" are very welcoming for enterpreneurs and developers:

For tech folks, from the 35,000' view, there are islands of opportunity. There's Apple Island, Facebook Island, Microsoft Island, among many others and yes there's Music Biz Island. Now, we as tech folks have many friends who have sailed to Apple Island and we know that it's $99/year to doc your boat and if you build anything Apple Island will tax you at 30%. Many of our friends are partying their asses off on Apple Island while making millions (and in some recent cases billions) and that sure sounds like a nice place to build a business.

But, of course, when it comes to "music biz island" the "natives" are not particularly welcoming. Even if you think "Apple island's" rates are too high, at least they don't try to destroy your business:

Now, we also know of Music Biz Island which is where the natives start firing cannons as you approach, and if not stuck at sea, one must negotiate with the chiefs for 9 months before given permission to dock. Those who do go ashore are slowly eaten alive by the native cannibals. As a result, all the tugboats and lighthouses (investors, advisors) warn to stay far away from Music Biz Island, as nobody has ever gotten off alive. If that wasn't bad enough, while Apple and Facebook Island are built with sea walls to protect from the rising oceans, Music Biz Island is already 5 ft under and the educated locals are fleeing for Topspin Island.

I'm reminded of this as Derek Khanna calls our attention to a footnote in Paul Graham's key post that discusses "What Happens At Y Combinator." If you don't know, Y Combinator is the leading startup accelerator out there. It's the place that many entrepreneurs strive to go to build up their startups and turn them into real companies. It has helped produce and/or jumpstart Reddit, Dropbox, AirBnb, Humble Bundle and more. Basically, if you want a pulse on what the best entrepreneurs are thinking about/working on, looking to Y Combinator is a good place to start.

Yet, in Graham's discussion of what happens at Y Combinator he explicitly tells startups to never bother doing a startup that in any way will need to involve record labels:

Except for the record labels, which are effectively a rogue state with nuclear weapons. There is nothing we or anyone else can do to protect you from them, except warn you not to start startups that touch label music.

I don't know how long that's been in there, but it's absolutely true. This is the exact time when the industry needs more innovation and entrepreneurial spirit, yet anyone who's been watching the space knows that actually trying to help legacy industry players is a ridiculous minefield. Earlier this year, I wrote about Michael Carrier's great research into the chilling effects that the recording industry's efforts have had on music entrepreneurs, leading to a massive chill in innovation in the space.

And, of course, even when a company can actually get through that gantlet, and actually provide a decent service, they get attacked by artists for not solving all their problems. It's a space where basically every one of the legacy players has made one thing clear to the innovators and entrepreneurs they need the most: stay out.

from the incredible dept

We've discussed in the past the oddity of how a UK anti-piracy group, FACT (Federation Against Copyright Theft), which is a private organization set up and controlled by large entertainment industry players, being deeply involved in criminal investigations and cases against individuals. In the case against Surfthechannel, FACT was directly involved in seizing and keeping the computers involved and then in paying the police for the prosecution. Even if you can reasonably argue that they should be involved in helping with providing information for the investigation, you'd think most people would agree that that's where the industry's involvement should end. They shouldn't be present on raids. They shouldn't get to touch or keep the evidence. And they certainly shouldn't be financing and pressing the criminal case.

But, apparently, the industry's control over law enforcement in the UK continues. TorrentFreak reports on how FACT teamed up with local police to send five police cars to house to arrest a guy and seize his electronic equipment with FACT employees, because FACT claimed the guy had filmed a movie and uploaded it. Apparently, the person they were actually looking for no longer lived at the address, but it didn't stop police from taking the guy to the police station where he was interrogated mainly by FACT employees with the police just sitting back and taking notes.

“At the police station I was interviewed by the police together with FACT (Federation Against Copyright and Theft). During questioning they asked me about Fast and Furious 6, where I obtained a copy from and if I was the one who went and recorded it at the cinema.”

Despite police involvement, as in previous cases it appears they were only present in order to gain access to the victim’s property, sit on the sidelines taking notes, and for their powers when it comes to presenting crimes for prosecution.

“I was detained for 3 hrs 12 minutes, out of that I was questioned for approximately 40 minutes. One police officer and two FACT officers conducted the interview. The police officer sat back and let FACT do all the questioning, so FACT were running the show,” the man reports.

As for what charges were used to arrest the guy? The vaguely ridiculous: "Miscellaneous Offense." When the guy questioned the police, they said they "could not find the relevant charge." Wow.

In the meantime, the guy has been released on bail and told that he's not allowed to enter any movie theater in England or Wales "while the investigation is being carried out."

No matter which side of the debate you're on, I'd hope you can recognize how utterly insane it is to allow private parties to effectively run a criminal investigation like this.

from the wow dept

The Wall Street Journal recently ran a puff piece showing just how much work it is for NBC Universal to keep fighting all those darn pirates. It's basically a propaganda piece starring Rick "Save the Corn Farmers!" Cotton, NBC's general counsel who fights piracy the way that Captain Ahab chases Moby Dick. There are all sorts of problems with the piece, including the fact that it appears to believe that just because NBC is sending a lot more takedowns, it means that the "problem" is growing. Of course, as we were just discussing last week, when you look at the actual data, it makes a pretty clear case for anti-piracy efforts doing nothing to stop piracy, but investment in lots of innovative startups providing consumers what they want being the path to success. But, that's not Cotton's style.

Anyway, Janko Roettgers, over at PaidContent, wrote a nice post debunking much of the story, which quickly got three comments that all sounded vaguely similar in their poor use of the English language -- all of which tried to spin the story into "proof" that greater enforcement, such as the six strikes effort, was needed. Two of them make the laughable claim that each infringement represents "lost revenue." That's not how it works. Here's one of the three comments:

I’m glad the author is pointing out what is pretty clear to people who browse the internet everyday, piracy is still widespread and is evolving every year. Not even taking into account the huge piracy issues overseas, each of these takedown requests represents lost revenue for both views and time spend tracking and reporting this illegal behavior. NBC will and should continue to do this because legal viewing of their content is vital for their business. But the better long term solution is to create a system where NBC isn’t playing a carnival game just to receive the proper copyright benefits for the content they invest so much in.

Of course, the real way to get to that "long term solution" is for NBC to stop playing the carnival game of takedowns -- which do nothing to reduce infringement -- and focus on making sure its content is more widely available from more legitimate sources.

Kelseliz, AlexB and SteveFeather, I’m glad you all enjoyed my story. However, I’m not too surprised you all share the same point of view. After all, the three of you commented from the same Washington D.C.-based IP address, and one of the email addresses you left points to a D.C. lobbying firm that gets paid by major labels, rights holder groups and movie studios… but I’m sure that’s all just one big coincidence.

I know that it's common in our comments for people to accuse others of being "shills." Frankly, people jump to the shill label way too fast. While it is clear that some of our commenters do work in the industry, there are very few indications that they are paid to be propaganda spreaders, and I try to give them the benefit of the doubt (similarly, I would urge our commenters to stop throwing around the "shill" term so readily -- unless there's actual evidence, don't leap to unsupported conclusions). That said, in this case it seems pretty blatant that some entertainment industry "friends" from a DC lobbying group are now out trying to spread a very poorly argued concept that we somehow "need" six strikes. I'd suggest that the RIAA, MPAA and others might find better ways to spend their money.

from the guilt-by-arrogance? dept

I'm planning to do some more thorough coverage of many of the comments that were submitted to the IP Enforcement Coordinator for next year's "Joint Strategic Plan." I just need to find an open block of time to go through a bunch of them. However, the folks over at TorrentFreak have highlighted one of the more ridiculous claims made in the combined filing from the RIAA & MPAA -- suggesting that people like Kim Dotcom are guilty of breaking the law because they're rich, arrogant and are trying to influence public opinion:

In this case, the Justice Department and other federal agencies are now grappling with a set of wealthy and arrogant defendants who are leaving no stone unturned in their efforts to sway public opinion against efforts to hold them accountable...

This reminds me of the debate I had with Jonathan Taplin, in which he referred to Kim Dotcom's (rented) yacht, and asked where were the musicians' yachts. Thing is, if I wanted to, I could easily find evidence of various rock stars with yachts. I could easily point to evidence of record label and movie studio execs with yachts, or who are phenomenally wealthy. Hell, I could just point you to the fact that the RIAA's boss, Cary Sherman made $3.2 million in salary in 2009 -- a number that I imagine is more than what nearly every single person reading this site makes in a year (or, in their lifetimes). Being wealthy is certainly no sign of guilt. And he got this amount even as he's leading the RIAA through it's clear decline in relevance phase, where he's still fighting the wrong war.

Similarly, it's not hard to find examples of massive arrogance on the part of these execs -- from the RIAA and MPAA putting down the public (repeatedly) or ignoring valid concerns about SOPA and PIPA, to decades of arrogant efforts to destroy all kinds of innovations they don't like, from radio to cable TV to the VCR to the mp3 player to the DVR.

Finally, these are the guys who run the media, and they're complaining about a few execs trying to influence public opinion? The MPAA's largest members are Universal (who owns NBC), Disney (who owns ABC), Viacom (who owns a bunch of TV stations and spun off CBS). And they're going to complain that some tech folks have an undue influence on public opinion? Really? And, let's not forget that these same groups have also "left no stone unturned" for decades in trying to influence public opinion. "Home taping is killing music." Remember that? You know those "FBI warnings" on every single movie you watch?

I'd say that if we're going to stack up which side of the debate has involved more "wealthy and arrogant" individuals "who are leaving no stone unturned in their efforts to sway public opinion"... it has to start with the RIAA and the MPAA. But, of course, they're allowed to do all of that, because none of it is illegal. But to try to associate such activity with illegality seems to be a stretch way beyond anything reasonable. Is Kim Dotcom loud, arrogant, crass and tacky in his displays of wealth? Absolutely. I doubt he's the kind of person I'd care to spend any amount of time with, personally. But just because his style is so outlandish, it doesn't automatically make him a criminal, as the RIAA and MPAA imply. Similarly, I don't automatically assume that super wealthy, arrogant individuals who work for the entertainment industry are obviously criminals either.

It is really quite obnoxious and demeaning for these large trade agencies to go around smearing people based on superficial items like arrogance and wealth. Kim Dotcom may eventually be found guilty of criminal activity. And, at that point, they're free to publicize that his actions here were criminal. But in the meantime, they're acting like cliquish high school girls, tarring and feathering people because they don't like the way they look or act.

Wrong. Exceptions remove the core asset value of the creative work and so reduce incentives for creators for greater economic activity. An exception may benefit the public sector, but that has to be weighed against the loss of revenue to the creative sector of the economy. Far better for the Government to examine ways of modernising copyright licensing that incentivise digital businesses and creators together, so that consumers pay a fair price and creators receive a fair reward and incentive.

This shows a rather stunning, and near total, misunderstanding of culture, creativity and economics, all in one brief paragraph. That's impressive! First of all, exceptions do not "removed the core asset" of the creative work. The core asset of the creative work is the creative work. And that remains in place. All it does is allow for a few specific uses that, for the most part, do not interfere with the economic prospects of the work, and can often increase the value of the work itself.

Second, claiming that exceptions "reduce incentives for creators" is flat out ridiculous. The US has had fair use rules in place for decades (the UK does not, and that's part of what they're arguing against), and it's widely recognized how useful fair use has been in creating incentives for creators to create without having to be bogged down with asking permission and paying tolls. Imagine where hugely successful TV shows like The Daily Show would be if it couldn't make fair use of news clips?

Next, it's a bizarre statement to note that an exception may benefit the public sector... and then to diminish that because the entire point of copyright law is to benefit the public sector. This suggests, ridiculously, that the industry associations that signed this letter actually believe having artists get paid and "the public benefit" are in eternal conflict -- what's good for one must be bad for the other. That's ridiculous. There's a situation where the public benefit is maximized, and it's the same point at which content creators are creating good works for them that are accessible. Finally, if we want to "weigh" the losses from copyright exceptions, that's great, but that's never what the industry does. It most certainly doesn't seem to want to look at all of the revenue gains from fair use as well. The fact that more people can create by building on the works of others without having to pay, and without having to get permission, is a huge boon for creativity, including the creativity of new works. And, often, that will drive commercial benefit to the works used that way. Just as an anecdotal example, I've been listening to a bunch of mashups lately, and some of the really good ones created massive new interest from me for artists that I'd never even known about before. And that's only happening because of the "exceptions" to copyright law.

The statement by the industries is so out of touch both with economics and the realities of the creative industries, that if I were a creative person represented by one of these organizations, I'd be horrified.

from the if-at-first,-you-cannot-sopa,-try-try-again dept

We've pointed out before that the short-term troubles of some legacy media players appears to have more to do with their own mistakes, rather than piracy. But they just keep on lobbying for more laws (none of which have actually worked). We've also pointed out that while defeating SOPA/PIPA was a good thing, the supporters of the bill, undoubtedly, were already hard at work trying to get similar efforts through elsewhere -- however possible. TorrentFreak has news of the IFPI submitting a list of proposals for search engines on how they should run their business -- which includes all sorts of extra efforts designed to help the entertainment industry by magically making it more difficult to find infringing content. I always find the hubris of such demands odd. It's really not proper for the entertainment industry to insist that search engines need to run their businesses in any particular way. In what other business does an entire industry demand a different industry protect them from having to adapt?

The recommendations & data themselves don't make much sense. The report claims that search engines send lots of traffic to infringing sites, but we've looked at the data pretty closely and there's no support for what they claim. The data showed that search engines definitely sent some traffic to infringing sites, but it was a very small percentage of their business. It's difficult to accidentally find infringing music to download these days. I realize that the industry claims otherwise, but the methodology there is suspect. They're claiming that if you search on the names of certain songs, unauthorized sites show up relatively high in Google searches. But there isn't evidence that that necessarily leads people to click on those infringing files. As the click-through evidence we saw showed, it's a relatively small percentage of people who do that.

While the industry has some good ideas for ways to improve business, blaming the tech industry (or insisting that all of their users act like criminals) has become an all too common refrain around here. It's counterproductive. The tech industry is providing all sorts of useful tools and services for the entertainment industry to thrive. I'm still at a loss as to how blaming the tech industry helps anyone. Punishing them just makes them less willing to design the next iTunes, the next Netflix or the next Spotify.

It's time for the industry to start focusing on real business model opportunities... not whining about everyone who it feels the need to punish.

from the let's-dispense-with-the-doom-&-gloom dept

Today, in Cannes, at the Midem conference, I did a presentation that was something of a follow up to the presentation I did here three years ago, about how Trent Reznor's experiments represented the future of music business models. This time, the presentation coincided with the release of a new research paper that we've spent the past few months working on, sponsored by CCIA and Engine Advocacy, in which we did a thorough look at the true state of the entertainment industry. For years, we've been hearing doom and gloom reports about how the industry is dying, how customers just want stuff for free, about analog dollars turning into digital dimes... and (all too frequently) about how new laws are needed to save these industries.

Yet, what we find when looking through the research -- from a variety of sources to corroborate and back up any research we found -- is that the overall entertainment ecosystem is in a real renaissance period. The sky truly is rising, not falling: the industry is growing both in terms of revenue and content. We split the report up into video & film, books, music and video games -- and all four segments are showing significant growth (not shrinking) over the last decade. All of them are showing tremendous opportunity. The amount of content that they're all producing is growing at an astounding rate (which again, is the most important thing). But revenue, too, is growing. Equally important is that rather than consumers just wanting to get stuff for free, they have continually spent a greater portion of their income on entertainment -- with the percentage increasing by 15% from 2000 to 2008.

This all points to the fact that what is happening within the industry is not a challenge of a business getting smaller -- quite the opposite. It's about the challenge of an industry getting larger, but doing so in ways that route around the existing structures.

The amount of content being produced in music, movies, books and video games is growing at an incredible pace.

Of course, some of this is a challenge for many existing players, but it should be seen as an opportunity. In fact, we conclude:

For consumers, today is an age of absolute abundance in entertainment. More content is available in more ways than ever before. If we simply go by the terms of the US Constitution’s clause from which copyright came, it seems clear that the "progress of science and the useful arts" is being promoted -- even as copyright is often being ignored or foregone. There is just a tremendous amount of content, a tremendous variety of content, it's more accessible to more people than ever before.

For content creators, it is an age of amazing new opportunity. Traditionally, to take part in the entertainment industry, you had no choice but to go through a gatekeeper, which served to keep the vast majority of people who wished to be content creators from ever making any money at all from content creation. Today, that is no longer true. More people are making more money from creating content than ever before -- with much of that coming via new tools that have allowed artists to use the internet to create, promote, distribute and monetize their works.

For the traditional middlemen, the internet represents both a challenge and an opportunity. There is no doubt that the internet has eaten away at some traditional means by which these businesses made money. But, as the data shows, there is more money going into the overall market, more content being created, and many new ways to make money. That shows that there is a business model challenge -- and a marketing challenge -- but much more opportunity in the long run. The key challenge for business is in figuring out how to capture more of the greater revenue being generated by the wider entertainment industry. Legacy players certainly face a lot more competition (and fewer reasons that artists have to do deals with them) -- which can explain some of the public complaints about the "death" of various industries -- but overall, it's clear that by embracing new opportunities, there are plenty of ways to succeed.

We're hopeful that having this kind of evidence and data will shift the debate from how to stop the sky from falling (when it's not) to one that looks at how can companies and individuals tackle the key challenge: succeeding in a much more competitive market.

from the indeed dept

We've discussed a few times in the past about how actor Wil Wheaton seems to understand that piracy isn't an enforcement issue, but a business model/service issue. He's also been somewhat vocal (since before many others caught on) concerning his opinion that SOPA/PIPA are a bad idea. And now he's responded to our story about Chris Dodd threatening politicians that the MPAA has financially backed if they don't pass PIPA/SOPA, by not only calling Dodd completely tone-deaf, but also noting that Dodd is lying about lost jobs:

I have lost more money to creative accounting, and American workers have lost more jobs to runaway production, than anything associated with what the MPAA calls piracy. Chris Dodd is lying about piracy costing us jobs. Hollywood’s refusal to adapt to changing times is what’s costing the studios money. That’s it.

Indeed, we've explained how highly questionable Hollywood accounting is used to keep actors from getting paid, even on some of the most successful movies ever. And, Wheaton is absolutely right. As we've been saying for the better part of a decade, the best way to deal with "piracy" is to properly compete with it. But Dodd and the MPAA still just don't get that. Actually innovating and competing in the market just isn't how things are done in Washington DC, I guess.